HOUSTON, July 16 /PRNewswire-FirstCall/ -- ACR Group, Inc.
(AMEX:BRR), a leading national wholesale distributor of heating,
ventilation and air conditioning ("HVAC") equipment and supplies,
today announced results for the first quarter ended May 31, 2007
(fiscal 2008). ACR Group reported total revenues of $59.5 million
in the first quarter, a 4.0 percent decrease from revenues of $61.9
million in the year-ago period. Net income for the quarter declined
50.9 percent to $828,000, or $0.07 per diluted share, compared with
net income of $1.7 million, or $0.15 per diluted share, in the
first quarter of fiscal 2007. Net income in the fiscal 2007 first
quarter included a gain of $218,000 attributable to an increase in
the fair market value of an interest rate swap agreement, and no
such gain in the first quarter of fiscal 2008. The year-over-year
decline in revenue and profitability was attributable to a material
weakening in several key geographies with high exposure to
residential new construction end-markets, in addition to generally
cooler- than-normal weather conditions, which diminished demand for
air conditioning products in various key regions throughout the
Sunbelt. Results in the quarter were also impacted by a combined
pre-tax loss of $200,000 associated with the opening of three
Arizona-based branches in fiscal 2007. "Our first quarter results
were impacted by a continued slowing in residential new
construction, particularly in our Florida and Nevada markets which,
in recent years, have contributed positively to our record growth,"
said Alex Trevino, Jr., President and CEO of ACR Group. "Weakness
in the residential housing market and more temperate weather
conditions have served to intensify competitive pressures in
several core markets, contributing to a year-over-year decline in
our same-store-sales and overall profitability in the quarter
compared to the prior-year period." Gross margin decreased 35 basis
points to 24.3 percent in the fiscal 2008 first quarter, compared
to 24.6 percent in the year-ago period. The modest year-over-year
decline in gross margin was attributable to increased competition
for a reduced volume of business in key markets, resulting in
increased pricing pressure and compressed selling margins. In
addition, the Company reported that the sale of higher margin
installation supplies, a group of products typically sold into the
new construction segment of the market, were lower in the fiscal
2008 first quarter. The Company's operating margin declined by 214
basis points to 2.6 percent in the first quarter, compared with 4.8
percent in the year-ago period. Same- store selling, general and
administrative expenses as a percentage of sales grew by 2.6
percent during the fiscal 2008 first quarter. First Quarter Fiscal
2008: Financial Summary Total revenues declined 4.0 percent to
$59.5 million in the first quarter of fiscal 2008, down from $61.9
million in the year-ago period. Same-store sales, which exclude
three Arizona-based branches opened after the first quarter fiscal
2007, decreased 7.0 percent in the first quarter of fiscal 2008
when compared to the year-ago period. Gross margin declined to 24.3
percent in the first quarter of fiscal 2008, compared to 24.6
percent in the year-ago period. Net income decreased 50.9 percent
to $828,000 in the first quarter of fiscal 2008, compared to $1.7
million in the year-ago period. Summary of Definitive Merger
Agreement On July 5, 2007, Watsco, Inc. (NYSE:WSO) and ACR Group
jointly announced they had executed a definitive merger agreement
under which Watsco will acquire ACR's outstanding common stock in a
cash tender offer of $6.75 per share. The offer represents a 42%
premium to ACR Group's 90-day average closing price through July 3,
2007. Upon conclusion of the transaction, ACR will operate as a
subsidiary of Watsco under its present name and management team.
Both companies expect the transaction to close in August 2007. In
accordance with the merger agreement, the tender offer is
conditioned upon at least 66 2/3% of the outstanding ACR shares
being tendered, as well as customary regulatory approvals,
completion of financing and certain closing conditions. ACR's board
of directors has unanimously recommended that ACR's shareholders
tender their shares in the offer. Approval of the transaction by
ACR's shareholders is not required. Officers of ACR have executed
agreements in support of the transaction representing 26% of ACR's
outstanding shares. Trevino concluded: "This acquisition represents
an attractive opportunity for our managers and staff, as well as a
premium valuation for our shareholders. There are a number of
operational and strategic similarities between ACR and Watsco,
including a shared approach to service and distribution which
emphasizes seasoned industry expertise and a 'decentralized' branch
model. We look forward to tapping the financial resources and
guidance of Watsco's team to accelerate our growth strategies."
About ACR Group, Inc. With nearly $240 million in revenue during
the trailing 12-month period ended May 31, 2007, ACR Group, Inc.
(AMEX:BRR) is one of the largest independent distributors of
heating, ventilation and air conditioning (HVAC) equipment and
supplies in North America. The Company is one of the leading
distributors of HVAC products to both residential and commercial
contractors at 54 branch locations throughout ten states. The
Company is committed to building a regional presence throughout the
Sunbelt states and in other geographies with the potential for
sustained economic growth. Forward-Looking Statements Statements in
this release that relate to management's expectations or beliefs
concerning future plans, expectations, events, and performance are
"forward-looking" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results or
events could differ materially from those anticipated in the
forward-looking statements due to a variety of factors including,
without limitation, weather conditions, the effects of competitive
pricing, general economic conditions, and availability of capital.
For more detailed information on the risks and uncertainties
associated with these forward-looking statements and the Company's
other activities, see the periodic reports filed by the Company
with the Securities and Exchange Commission such as Form 10-K, Form
10-Q and Form 8-K. ACR GROUP, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED INCOME STATEMENTS (In thousands, except per share
amounts) (Unaudited) Three Months Ended May 31, 2007 2006 Sales
$59,454 $61,924 Cost of sales 45,013 46,669 Gross profit 14,441
15,255 Selling, general and administrative expenses 12,878 12,305
Operating income 1,563 2,950 Interest expense 506 543 Interest
derivative gain - (218) Other non-operating income (142) (114)
Income before income taxes 1,199 2,739 Provision for income taxes
371 1,055 Net income $828 $1,684 Earnings per share: Basic $.07
$.15 Diluted $.07 $.15 Weighted average shares outstanding: Basic
11,385 11,215 Diluted 11,628 11,478 ACR GROUP, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) ASSETS May 31, February 28, 2007 2007 Current assets:
Cash $1,228 $1,135 Accounts receivable, net 28,089 23,330
Inventories, net 46,370 43,516 Prepaid expenses and other current
assets 1,772 1,619 Deferred income taxes 1,702 1,652 Total current
assets 79,161 71,252 Property and equipment, net 5,534 5,647
Goodwill 5,408 5,408 Interest derivative asset 81 - Other assets
869 853 Total assets $91,053 $83,160 ACR GROUP, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY May 31, February
28, 2007 2007 Current liabilities: Current maturities of long-term
debt $130 $131 Current maturities of capital lease obligations 185
160 Accounts payable 27,237 23,106 Accrued expenses and other
current liabilities 4,928 5,931 Income tax payable 518 232 Total
current liabilities 32,998 29,560 Long term obligations: Borrowings
under revolving credit agreement 27,996 24,361 Long-term notes, net
of current maturities 1,182 1,214 Long-term capital lease
obligations, net of current maturities 417 412 Interest derivative
liability - 143 Deferred income taxes 271 184 Total long-term
liabilities 29,866 26,314 Commitments and contingencies
Shareholders' equity: Preferred stock, $.01 par value - - Common
stock, $.01 par value 121 121 Paid-in capital 43,362 43,286
Accumulated other comprehensive income (loss), net of tax 51 (88)
Accumulated deficit (15,345) (16,033) Total shareholders' equity
28,189 27,286 Total liabilities and shareholders' equity $91,053
$83,160 DATASOURCE: ACR Group, Inc. CONTACT: Investor Relations,
Mr. Noel Ryan, Director, Lambert, Edwards & Associates,
+1-616-233-0500; or Mr. Tony Maresca, Chief Financial Officer of
ACR Group, Inc., +1-713-780-8532
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